Lecture 77: The Great Depression

Theme

• Work, Exchange, and Technology

Learning Objective

• Explain the causes of the Great Depression and its effects on the economy.

Key Concepts

Transition to Urban Industrial Economy

• Rural to Urban Shift: By 1920, more Americans lived in urban areas than rural ones.
• Agricultural Economy:
  • World War I boosted American agriculture due to higher demand for food crops.
  • Post-war demand dropped, leading to economic struggles for farmers.
  • Overfarming and drought led to the Dust Bowl, prompting migration (e.g., Okies moving to California).

Urban Industrial Economy and Wealth Disparities

• Factory System: Improved efficiency with assembly lines and scientific management but widened wealth gaps.
• Decline of Unions: Less popular in the 1920s due to laissez-faire policies.
• Consumer Credit: Rise in buying goods on installment plans led to consumer debt.
• Protective Tariffs: U.S. tariffs led to retaliatory tariffs, affecting international sales.
• Stock Market Speculation:
  • Rise in speculative investments created a market bubble.
  • Buying on margin increased financial risk.

Financial Instability and Stock Market Crash

• Black Tuesday (October 29, 1929): Stock market crash precipitated the Great Depression.
• Bank Runs: Panic led to mass withdrawals, causing bank failures.
• Economic Impact:
  • 25% unemployment.
  • Gross National Product (GNP) fell by 50%.
  • Closure of 20% of U.S. banks.

President Hoover's Response

• Blamed for economic suffering due to inaction.
• Associated terms: "Hoovervilles," "Hoover Flags," "Hoover blankets," "Hoover wagons."
• Federal Farm Board: Attempted to stabilize crop prices.
• Reconstruction Finance Corporation: Supported financial institutions.
• Bonus Army March: Veterans protested for early bonus payments; Hoover ordered their removal.

FDR's Steps Towards Recovery

• Emergency Banking Act: Allowed evaluation and reopening of solvent banks.
• Glass-Steagall Act: Prevented banks from risky investments.
• Securities and Exchange Commission (SEC): Regulated Wall Street to prevent fraud.
• Fair Labor Standards Act: Established minimum wage, maximum working hours, and ended child labor.

Policy Responses and Welfare State

• Social Security Act: Established a national pension system.
• Unemployment Compensation: Provided financial support for the unemployed.
• Policies formed the basis of the New Deal, transforming the U.S. into a limited welfare state.

Recap

• Urbanization continued during the era.
• Stock market crash was a key catalyst for the Great Depression.
• President Hoover faced criticism for inaction.
• FDR's New Deal laid the groundwork for a limited welfare state.

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